(Updates with information about meeting throughout)
By Guillermo Parra-Bernal
SAO PAULO, Sept 28 (Reuters) - Investment banks managing the initial public offering of Brazilian state-controlled Caixa Econômica Federal's insurance unit recommended delaying it until April, due to this month's worsening of market conditions, a source directly involved with the deal said on Monday.
Representatives from Caixa Econômica and the so-called underwriters met in Brasilia earlier in the day to discuss the deal, said the source, who requested anonymity since the IPO plan remains private.
Brazil's National Treasury and Caixa Econômica could decide whether to proceed with the IPO at a meeting scheduled for this week, the source added. While the Treasury leans toward pursuing the deal, Caixa Econômica - which is fully owned by the Treasury - worries it could bring about potential legal issues if it is priced too low, the source noted.
An IPO under current conditions faces "great execution risks and the possibility of an enormous discount," the source said. Brazil's currency, the real, is down 36 percent this year, while the benchmark Bovespa stock index is trading a six-year low in the wake of growing local political and global economic turmoil.
The Treasury is looking for additional, non-recurring sources of revenue to help plug the country's swelling budget deficit. Planning Minister Nelson Barbosa told reporters on Monday the government is working to price the offering this year, although any move hinges on market conditions.
Underwriters of the Caixa Seguridade deal are led by Banco do Brasil SA, UBS AG and Goldman Sachs Group Inc.
Caixa Econômica did not have an immediate comment on the timing of the IPO. Banco do Brasil, UBS and Goldman Sachs declined to comment.
Other banks working on the deal and that participated in Monday's meeting with Caixa Econômica include Banco Bradesco BBI, Itaú BBA SA, Grupo BTG Pactual SA, Santander Investment Securities, Banco Brasil Plural, Citigroup Inc and Bank of America Merrill Lynch, the source added.
Documentation for the Caixa Seguridade IPO is ready to be filed before securities industry watchdog CVM, although the current slump in Brazil's currency, stocks and debt markets may lead the Treasury to put off the deal, five sources said last week.
$1 = 4.0962 Brazilian reais Reporting by Guillermo Parra-Bernal; Additional reporting by Marcela Ayres and Alonso Soto in Brasilia; Editing by Alden Bentley and Tom Brown